Short Sellers Target Surprising Tech Stocks
Financial markets are experiencing a period of volatility, with both the Dow Jones Industrial Average and the S&P 500 facing downward pressure. Concerns about economic growth and persistent inflation continue to weigh on the markets.
Many of the prominent tech stocks known as the “Magnificent 7” have lost momentum, creating uncertainty within the U.S. economy.
Palantir Technologies (PLTR), a popular tech stock, recently saw a dip following news that the Pentagon plans to reduce its federal defense budget. The recent selloff of artificial intelligence (AI) chip stocks, triggered by Chinese AI startup DeepSeek, may also be making investors nervous.
Despite these challenges, experts maintain a generally optimistic outlook for prominent tech stocks, which are often quick to recover. However, recent data indicates that short sellers are targeting some of the sector’s biggest names.
Unexpected Names on the Short List
When discussing stocks to bet against, investors often overlook leading tech companies. These companies, which drive high-growth industries, have a proven track record of overcoming market volatility.
However, a market research firm recently released a report identifying the most shorted securities across large-, mid- and small-cap ranges for January 2025. Hazeltree’s new Shortside Crowdedness Report reveals some surprising names among short sellers’ favorites.
The report states that these lists are created using data from Hazeltree’s proprietary securities finance platform, which monitors around 15,000 global equities across the Americas, EMEA, and APAC. This updated list includes Apple (AAPL), server technology company Super Micro Computer (SMCI), and business intelligence software producer MicroStrategy (MSTR).
These names may seem surprising. Apple is one of the tech sector’s most prominent companies and has experienced steady growth, rising 34% over the past year. MicroStrategy stock has surged in value by over 340%, due partly to its high Bitcoin exposure.
SMCI stock, although volatile, has performed exceptionally well recently, increasing 86% since the beginning of the year.
“The tech sector continued to ride a wave of investor enthusiasm from December, which included short-sellers who gravitated to large-cap security names such as Apple and Super Micro,” said Tim Smith, Hazeltree’s Managing Director of Data Insights.
While none of these tech stocks topped the large-cap list, all three ranked in the top ten most crowded short positions. Super Micro Computer and MicroStrategy tied for fifth place with crowdedness scores of 96. Apple received a score of 93.
Wolfspeed (WOLF), a semiconductor maker, topped the small-cap list with a score of 99. This is not surprising, as the stock has fallen 73% over the past year.
According to Hazeltree, “Each score represents securities that are being shorted by the highest percentage of funds in Hazeltree’s community in a pre-defined category. The securities are graded on a scale of 1-99, with 99 representing the security that the highest percentage of funds are shorting.”
Should You Buy or Sell These Stocks?
When short sellers target a leading company like Apple, it may be tempting to dismiss it, given the company’s status as a “Magnificent 7” favorite. However, a closer look suggests the company’s outlook may not be so positive. As James “Rev Shark” DePorre, an investing expert, points out, Apple has an aggressive valuation, with “a P/E of 35 and single-digit growth.”
Marcus Sturdivant Sr, Managing Member/Advisor of The ABC Squared, discussed the potential logic behind shorting Apple. He believes problems in China may have influenced the decision to bet against Apple. However, he advises investors to proceed with caution.
“To short Apple, you need to be nimble and ready to cover your position,” he stated. “Apple has been shorted before, but now may not be the best time. People also flow their investment dollars into companies they feel comfortable in, and Apple has been a global staple for decades.”
He added that shorting SMCI was more logical months ago, as concerns about the firm’s bookkeeping and possible illegal activities led to a stock price decline. Short seller Hindenburg Research raised these concerns in a report issued on August 27, 2024. Although the stock has partially recovered, short interest in both SMCI and MSTR remains very high, accounting for 10% and 18% of each stock’s float, respectively.
